SLP112 – Wiz and m52go – Bisq: Decentralised Bitcoin Trading

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Wiz and m52go join me in this episode to talk about Bisq, a decentralised open source project that serves to enable zero KYC decentralised Bitcoin exchange around the world. We talk: 

  • How Bisq is decentralised
  • Structure of Bisq
  • How Bisq is developed
  • Localising it for Japan and how this can be done for other countries
  • BSQ token

Links: 

Sponsor links:

Stephan Livera links:

Podcast Transcript by GiveBitcoin.io:

Stephan Livera: Wiz and Steve, welcome to the show.

Steve Jain: Thanks for having me.

Wiz: Thanks for having us on.

Stephan Livera: Look, my listeners are probably already familiar with Wiz from the earlier episode, but Steve, would you like to just take a minute and just tell us a bit about yourself?

Steve Jain: Sure. I have a background in I guess finance and tech. I started my career with GE Capital doing venture debt risk assessment, like venture capital but with debt. And so I did due diligence underwriting type work there.

Steve Jain: I also worked in sales, enterprise sales for a little while, B2B business development type work. And then I guess throughout that time I had a toe in development. I ended up creating two of my own consumer focused web apps, which I still run today.

Steve Jain: And yeah, for about the past year and a half, I’ve been contributing to Bisq, mainly in communications oriented work, documentation, logging, growth calls, speaking, that kind of thing.

Stephan Livera: Today, I was really keen to discuss with you guys about Bisq because there’s a lot to that, and it’s about how can we essentially make Bitcoin more resilient, more strong and… So I guess maybe just why we got you here Wiz, did you want to just give us a quick update on bitcoiner or shitcoiner?

Wiz: Yeah. I’m sure your listeners know me as just another toxic Bitcoin Maximalist on Twitter, but yeah, in the last show we talked about the bitcoiner or shitcoiner website and it’s actually ready to go. So what I’ll do is I’ll time it to be released whenever you release this podcast.

Wiz: But basically I hate shitcoiners, I hate crypto companies, I hate all these scams dude. I mean they’re all just like cheap knock offs of Bitcoin that like tweak a couple of parameters and add a narrative, and millions of dollars of marketing budget, and market maker wash trading bots, yeah and dude…

Wiz: They come to our meetup in Tokyo with their brochures and their t-shirts and it’s just… There’s no place for companies in Bitcoin. Bitcoin is a community of individuals. And if you’re doing this company that’s making your scam or whatever, they just troll me in real life to my face all the time.

Wiz: Basically all companies are evil. It’s like you could start out as the most best intention company, and through even no fault of your own, the government will just come knocking on your door and say, hey, you have to put all these back doors in your app for us and spy on all your users for us, because we’re the government, we have guns, and we’re going to shut you down if you don’t do it.

Wiz: And that’s what happens to a lot of companies in the Bitcoin space. ShapeShift, for example started out being very proud about having no KYC. You can’t even create an account. And sure enough, couple of years later, yeah, actually mandatory account creation and mandatory full KYC.

Wiz: So even if you have the best intentions, just the fact that you’re this centralized company means that you’re eventually going to sell out your users at some point even if you don’t really want to.

Wiz: That happens all the time with Bitcoin. Like if you look at BitPay was another good example with the BIP-70 where they used to be cool, and then all of a sudden they add this totally proprietary BIP-70 thing where you can’t even get a Bitcoin address to pay in.

Wiz: And Nicholas story I should say, he did that famous tweet where he said, “You’ve broken my trust BitPay, I’m going to make you obsolete.” And sure enough, he replaces this entire company with millions of dollars of VC funding with an open source project.

Wiz: He implements the same API and now users can just switch to BTCPay Server, and even run it on Raspberry Pi. That’s what I feel the real Bitcoin cypherpunk philosophies boil down to. It’s like your hardware, your private keys, and just peacefully interacting with other individuals.

Wiz: That’s what Bitcoin is, a community of individuals. And there’s no room for companies, there’s no room for a centralized exchanges. And I guess that’s why we’re working on Bisq, Steve.

Steve Jain: That’s right.

Stephan Livera: I guess I would say for me I’m not as bearish on the idea of companies, but I agree with you that there is that vector, that angle for the government to try and control them. And that is typically where control can be exerted, and it’s difficult. But I definitely see a value in having a gamut of options.

Stephan Livera: And you would have like some fully regulated companies, and then some somewhere in the middle, companies that are maybe somewhat centralized, but giving you noncustodial options. And then over on the other end, way out on this end, you’ve got Bisq, which is like the idea of trying to be maximum decentralized such that there’s no CEO…

Stephan Livera: … there’s no one person that can be taken out or influenced such that the exchange can get compromised, let’s call it, or trading platform or whatever you want to call it. But yeah, Wiz I know you recently tweeted out a thread about Bisq, and you were talking about the difference between Bisq and other ways of exchanging.

Wiz: Right. There’s a lot of basically fake decentralized quote, unquote exchanges out there and… I did this tweet storm the other day about Bisq, and sure enough some shitcoin scammers spam replied my thread, and they’re like, “Oh yeah, it’s Bisq and this other decentralized exchange that you’ve never heard of.”

Wiz: And so I click on the link, and sure enough on the website they have this about our company thing at the bottom. And it’s like, if it’s a centralized company, how the hell are these guys decentralized?

Wiz: Bisq is an actual decentralized community. There’s no company, there’s no servers. Everything is peer-to-peer run over tour. It’s for the users, by the users. There’s no shareholders that we’re reporting to. There’s no government jurisdiction that we have to comply to any KYC regulations.

Wiz: If you take some other crypto exchanges, quite often they get paid a ton of money to list all these shitcoins and show them to our users. And I’ve actually had like some ICOs scammers contact me, they’re like, “Hey, I want to list my shitcoin on Bisq.” And I’m like, “Dude, we’re a community of individuals. Why would we want to scam ourselves with your shitcoin?” That just makes zero sense, and they don’t really get it.

Stephan Livera: Steve, did you want to add any of your own thoughts around what Bisq is? What’s the ethos of Bisq?

Steve Jain: Yeah. I guess maybe if I could just add to a little bit about what was said about companies. There was a tweet that Meltem Demirors had a couple of day or two ago that I found interesting. She was talking about how some of the basic principles of Bitcoin were or are sovereignty, privacy, getting rid of rent seeking and that kind of thing.

Steve Jain: But then she attached a picture… By the way, I don’t mean to dunk on her, I just think it’s a cool thing to point out. She attached a picture with some of the big companies in this space and how much they’re worth now.

Steve Jain: And she’s like, “We should take a hard look at what we’ve built because a lot of the value in our industry is being captured by these intermediaries.” It stuck out to me because if you look at it in one way, the whole point of a company is to be an intermediary.

Steve Jain: You have investors, and you have customers, and whole point is to serve your investors by providing some kind of a product or service to your customers. And so the fact that they’re accumulating capital and sitting in the middle and being intermediaries shouldn’t be a surprise.

Steve Jain: And so when I think about Bisq, it’s like Wiz said, a community of individuals connected through a peer-to-peer network, much like if you run a Bitcoin node, you are in a way your own bank. You have full control over transactions. You have a whole blockchain that allows you full control.

Steve Jain: Bisq in the same way is like you’re becoming your own exchange. I think a lot of people think about exchanges as a service provided to you by another entity. But the Bisq model is that you become that entity, and you have full control over how you want to exchange or what you want to exchange, and on what terms you want to do that.

Wiz: That’s a really good point. If Bitcoin allows everyone to be their own bank, then Bisq allows everyone to be their own Bitcoin exchange. That’s a really great way to sum it up. And Bisq is a lot like Lightning. It’s really this layer two system that’s built on top of Bitcoin.

Wiz: It has its own peer-to-peer network just like Lightning does. But instead of payment channels, you have trade channels. So when you trade with people, you open up on-chain transaction with them and everything goes into this Multisig, very secure way of trading.

Wiz: And after you get the fee at currency payment from them, and you confirm everything’s secured, then you can release the funds to them. There’s just so many similarities between Lightning and Bisq from a very high level.

Wiz: I’m sure it’s not like the most 100% technically accurate analogy to use, but I like to think of… I looked at explaining to new users by saying, Bisq is like another layer two system for Bitcoin. Steve do you want to go into the why Bisq?

Steve Jain: Yeah. I guess when we think about why Bisq, we usually approach it from three perspectives. So there’s the security aspect, the privacy aspect, and then the freedom or censorship resistance aspect.

Steve Jain: I guess for security, the things to mention here is of course you have full control of your Bitcoin, it’s a non-custodial service. There’s a wallet built right into the software where you can use to fund your trades.

Steve Jain: So there’s a deposit required for each transaction that you do on Bisq. The Bitcoin for those deposits comes right from your wallet.

Wiz: Not your keys, not your Bitcoin. Right?

Stephan Livera: So how about from a privacy point of view as well?

Wiz: I guess the privacy is pretty solid because the core component is that you’re running your Bisq node on your own hardware, and so you don’t have an account, you just have a cryptographic identity. Just like with Bitcoin, you don’t have a Bitcoin account, you just have a Bitcoin wallet.

Wiz: And so in your Bisq wallet, your node is only accessible through a Tor hidden service. And so your quote, unquote account, if you want to think about it like that is just a string of random numbers and letters. You don’t put your name.

Wiz: Bisq doesn’t ask what your social security number is or anything like this. And there’s no IP addresses being leaked since use of Tor is mandatory. It’s funny, the other day, I think it was local Bitcoins had this warning message on their website that said, “if you use Tor, oh, there’s a risk that you might lose your Bitcoins.”

Wiz: I thought that was bullshit. You should be required to use Tor when trading your Bitcoin. Otherwise, there’s a risk that you might leak some privacy information. And so Bisq really tries to correctly respect the user’s security, privacy, and freedom in order to be just completely censorship resistant, government resistant, capital control resistant.

Wiz: For example, in Japan, the centralized exchanges in Japan can only trade the coins that the government allows them to trade. So for example, if you want to buy Monero in Japan, the only way to buy it is with Bisq simply because it has privacy, so the government thinks it’s bad because it can’t do blockchain analysis on the people.

Wiz: But of course, Bisq is a financial self sovereignty, so you can trade whatever you want there. That being said, there is a no scam policy and a no BCash policy on Bisq. So we don’t allow ICOs or BCash.

Wiz: If Bitcoin is the separation of money and state, then Bisq is the separation of trading and state. We don’t want the government interfering in our private trades with other individuals in our Bitcoin community. That’s just none of their business, and they shouldn’t be infringing our rights to privacy and freedom.

Steve Jain: Point of trivia there, Bisq is the second name. So the original name of Bisq was Bitsquare, which was supposed to play on the term Satoshi Square. So the whole idea was that people, they should be able to meet up.

Steve Jain: Just as they would in person, they should be able to meet up digitally to do trades without any kind of interference. That’s the whole idea from the beginning.

Stephan Livera: That’s a bit of background on, I guess the ethos of Bisq, why Bisq. I’m interested now to just talk through the flow. How does it work? I’ve had an opportunity to use Bisq, I’ve tried just doing a small buy.

Stephan Livera: And essentially what I found was that you basically go to bisq.network, you download the software, you install it, you create an account, and basically I think you make a password, and I think that encrypts your Bisq wallet and so on.

Stephan Livera: Steve, did you want to just talk through the flow in terms of what it looks like to say buy Bitcoins using Bisq?

Steve Jain: Sure. Like you said, you go to the website, you download the software. Once you have it running, the first thing you want to do is deposit some Bitcoin. Every trade on Bisq, like I said, requires a security deposit just mainly to incentivize traders to follow through on their ends of the deal.

Steve Jain: So if you’re buying Bitcoin, you’re going to need a certain percentage of however much you’re looking to buy. It’s usually a small amount. It’s sometimes a bit of a hurdle for new, like for people who don’t have any Bitcoin.

Steve Jain: We have some suggestions on the side in our docs for newbies to get started, but if you have a little bit of Bitcoin, you can put it in the Bisq wallet and either make or take an offer. This is a little bit of a new concept for people coming from centralized exchanges because there is no order book per se.

Steve Jain: There is no server somewhere saying, here are the orders that are available on Bisq and offering them for you to buy. The offers that you see on Bisq are offers from other people on Bisq at that very moment.

Steve Jain: So they’re being sourced from other peers on the network, and you’re seeing them as one order book, but they’re actually from a bunch of other people. So when you see an offer you like, you accept the offer, and you’re asked to fund your wallet with the deposit, trading fees and mining fees.

Steve Jain: Mining fees to fund the Multisignature transaction. That will include your deposit fees, and the sellers deposit and fees. Once that deposit or once that transaction confirms, you send your payment. Fiat payments are sent out of band.

Steve Jain: So Bisq does not actually integrate with any Fiat payment methods, you actually send your payment through your bank or however you’ve decided to pay for the Bitcoin. And then you tell Bisq that you’ve sent the payment.

Steve Jain: And then once the seller sees the payment come through in their bank, they tell Bisq like, yeah, I received this payment. Two of the three keys are signed, and the funds are released to the each party. That’s in a nutshell how it works.

Stephan Livera: Great. And so I guess just to talk that through then for the listeners, it’s basically, at the point where you accept that offer, basically your Bisq client is spending that into a Multisignature two of three output. And then once it’s all ready to be released, that’s when you get your Bitcoin that you’re buying, for example.

Steve Jain: Right.

Stephan Livera: So I guess let’s just talk a little bit about the zero start problem there. It can be a bit difficult for a first time user because one thing I noticed is that you actually need Bitcoin to buy Bitcoin, right?

Stephan Livera: So it’s a little bit difficult for a first time user. Can you talk through some of your thoughts there? What are some of the ways that a user might get around that?

Steve Jain: Well, a couple of things. They may not be ideal. You could always go to friends and family, so if you have friends or family in the Bitcoin, you probably already know they’re in the Bitcoin, they probably can’t stop talking it. So you know who to go to.

Steve Jain: But you could go to ATM. A lot of ATMs don’t require KYC for small amounts. You can work for it, find a project or maybe a gig that’s looking to pay Bitcoin for a little bit of work. Maybe local meetups or another way to.

Steve Jain: If you have any events going on in your area, then finding people that way who be willing to sell a little bit of Bitcoin, so that way. I think if you really want Bitcoin in this day and age, if there’s a will, there’s a way you can find. You don’t need a whole lot to start out with.

Stephan Livera: So as I understand, at least for the Australian system, it was a little bit over 0.01 Bitcoin, or a little bit over 1 million sats that you need to basically do the buy of 0.01. It might be interesting as well just to talk through the flow.

Stephan Livera: Are there any key differences to call out there if the user is doing, say, a bank transfer versus an in-person meetup? Is there any key differences there or not really?

Steve Jain: It’s probably mostly logistical. If you’re doing an in-person, of course, you have to meet somebody in-person. There’s a different set of I guess guidelines or things you want to think about if you’re meeting a stranger to do a transaction like this.

Steve Jain: Bank transfer is something you could possibly do online. You don’t have to go through the hassle of… So it could be quicker. Then of course you have considerations of a bank knowing that you’re doing such or possibly knowing.

Steve Jain: They don’t know, but there’s a possibility that they could guess that you’re doing such a transaction. And some banks are more okay with that than others. There are pros and cons to each.

Stephan Livera: Got it. And is there some reputation system in Bisq? I noticed there are also some restrictions at the start, so can you talk a little bit about the lifting of those and reputation system?

Steve Jain: Yeah. I guess reputation… In one way there isn’t really a reputation system in Bisq. Essentially you have… There are no accounts. You have payment accounts that you’ve put into Bisq as ways to do transactions.

Steve Jain: These payment accounts are rated by age, so the older your payment account, the more of an allowance you have to trade, or the bigger your trade sizes can be. The only semblance of reputation that there really is, is that you can see the number of times you’ve done a trade with the particular onion address.

Steve Jain: Not a particular person because a person can change their onion address whenever they want. The restrictions that you mentioned are in place right now because of some incidents earlier in the year with the stolen bank accounts.

Steve Jain: And so in major markets, we limited trade sizes to 0.01 Bitcoin as a temporary measure to get around these issues that we were having. We’re working on some account signing mechanisms to, I don’t know if I would call it reputation, but to provide more confidence to the network that people’s payment accounts are actually their payment accounts.

Steve Jain: So basically what’s going to happen is, people are going to… Accounts before March 1st of this year, we’re confident that they’re a trustworthy. Those accounts are going to be signed by Bisq’s arbitrators.

Steve Jain: And accounts after March 1st are going to have to verify… I don’t want to sound like it’s KYC, they’re basically going to have to… As long as they haven’t had a charge back, they’ll be counted as good and signed by people who were signed before. And then at that point, their trade limits will be lifted.

Wiz: I think the entire concept of reputation system goes against the fundamental philosophical principle of respecting the user’s privacy. Our reputation system is basically the opposite of respecting the user’s privacy.

Wiz: And so it’s actually very, very difficult to implement a privacy… Sorry, reputation system. And even more so in a decentralized way. We don’t have any servers, we’re trying to make the system more decentralized, not more centralized.

Wiz: And so, yeah, there’s a few lame restrictions right now on a few payment method types that maybe had some frauds or, but I think for the most part, if you stick to using payment methods that don’t have a chargeback risk, or if you… Like face to face cash, there’s no limit, right?

Wiz: I’m sorry, the limit is to Bitcoin or something very… And obviously, if you’re meeting the person face to face, you can just do whatever transaction you want to do anyway. But the point is that we’re trying to implement this system without sacrificing the user’s privacy. It’s like Bitcoin.

Wiz: Remember in the early days of Bitcoin, you ever used Bitcoin-Qt? It was like the ugliest app ever. It’s like a lot of this stuff could only be done on the command-line, but the point was, if Bitcoin wanted to just onboard a whole bunch of users, it could have just added some kind of centralized feature.

Wiz: The whole point of Bitcoin is to be decentralized, so yeah, the UX suffers as a result. And fortunately, this is something that gets improved over time. Right now we have probably 10 or 20 different Bitcoin wallets on the app store, you can just install instantly on your phone.

Wiz: And there’s all these really cool hardware wallets and full node products coming out that make Bitcoins so easy to use for newbie users, even just plug and play out of the box while still respecting their security, privacy and freedom.

Wiz: So I think over time, Bisq will even remove the arbitrators, it’ll remove all these silly trade restrictions and amount limits, and it’ll continue to respect the user’s privacy even more so. And so it’ll improve over time.

Stephan Livera: Okay. Got it. And I think another thing listeners will want to understand is just the flow in the case of an unsuccessful trade or let’s say… I guess, let me just make a hypothetical up. Let’s say, I accept an offer to buy from someone, and then it says, pay whatever, $150 to this bank account, and let’s say I’m a dodgy person.

Stephan Livera: I didn’t actually transfer $150 to that account, and then I tick yes, I did. What’s the flow there in the non happy path. Can you just talk through that for us, Steve?

Steve Jain: Essentially you would have to prove to a dispute resolution contributor that you actually have not received the payment. So the reason I’m a little vague about that because the mechanism to do this has changed quite significantly in the past couple of weeks. Just I think 1.1.6, which was I think released two weeks ago now.

Steve Jain: So it used to be that arbitrators were the primary means of dispute resolution on Bisq, and they had that third key in the Multisig transaction. That’s still the case for a little bit longer, but recently we introduced mediators.

Steve Jain: So what would happen in that case is, firstly we try to resolve the issue directly with the trader through Trader Chat. So Trader Chat was just recently added and intended for people to solve little problems directly with the trader.

Steve Jain: If you are really dodgy and no help in the Trader Chat, then you would open a case with a mediator. A mediator is somebody who’s put up a bond, they’re fairly trusted, but they don’t have the keys in the Multisig.

Steve Jain: They’re merrily somebody who looks at your problem, understands your side of the case, and then makes a suggestion for a payout. So if they conclude that you are dodgy, and the other person is honest, then they’ll suggest that you get the funds in the Multisig wallet, and that the other person who was being dodgy doesn’t.

Steve Jain: If both people accept that suggestion, the trade is over, the funds go to the right people and everything’s done. If that does not work out either, then an arbitrator who has that third key will take another look at the situation and make a decision.

Steve Jain: And whatever they decide is authoritative because they have that third key, and they’ll direct funds as they think appropriate.

Wiz: And I just want to add that most of the transactions or the trades that go to mediation or arbitration are not evil scammers trying to rip people off. They’re just newbies who made innocent mistakes, they pushed the wrong button or they’ve got to re-sync their app or something. And they normally get worked out without the arbitrator having to actually enforce anything.

Wiz: And that’s why the introduction of mediators I think is going to be very helpful, but for the most part, all the trades just go through fine without any problems. They’ve never had any problems.

Stephan Livera: Okay, great. And I guess in terms of disclosing, and privacy, and so on, I guess just for the users and the listeners to think through, what are they disclosing? I guess in the case that you are selling Bitcoins on the app, you would have to put your bank account details if you want to use bank account transfer.

Stephan Livera: So then that’s the information that the buyer is going to see because it’ll say, please transfer whatever, $100, $150 into X, Y, and Z account with this name. So I guess that’s just for the listeners, make sure these are the things you understand, that’s what you’re… To the limited extent that you’re doxing yourself to one individual who accepts the offer, that’s the extent.

Steve Jain: I’m glad you brought that up. I think that’s an important thing to underline. Because a lot of people, they see that you got to put your bank account information in the software and they go, oh well, I’m doxing myself. This is KYC, I might as well trade somewhere else. But the reality is, it’s just going to that one other peer.

Steve Jain: It’s not going to a central company. It’s not being persisted in any database somewhere out in the internet. It’s stored locally on your machine and only sent to your trading peer once that deposit transaction confirms, and then only they see it, nobody else does.

Stephan Livera: Great. And now, Wiz, I think, let’s bring it back to you because I know you were recently doing a lot of work to try and basically build up the volume in Bisq in Japan. So tell us a little bit about your experience there.

Wiz: This is something that I’ve been working on for the past few months. Of course, we had… I organized a local meet-up in Tokyo, and a few months ago, local Bitcoins I guess got shut down by the government in terms anonymous cash trades, and now they have mandatory KYC and all this stuff.

Wiz: And so my local Bitcoin community guys are like, “Hey, how should we trade peer-to-peer now?” I started researching, and then I heard about Bisq, and I was like, oh, this looks interesting, but I was a little skeptical at first, right Steve?

Wiz: I think I jumped on one of their growth calls at like 4:00 AM my local time and… I’m a pretty toxic Maximalist, I’m like what is this? But after checking it out, actually, oh wow, this seems like actually legitimately in line with the cypherpunk philosophies of Bitcoin and everything.

Wiz: So I started working to basically localize the app for Japan. First of all, I had a good friend of mine who’s a native Japanese speaker helped me translate the app and Bisq website also into Japanese. And that’s pretty straight forward translations, but the next big step was adding the local Japanese bank transfer as a payment method into the app.

Wiz: And so I had to research with the Bank of Japan how the interbank transfers work and… Actually added all like 500 banks in Japan into the Bisq app now. So if you have a Japanese bank account, you can configure it in there.

Wiz: Over the past few months I’ve been shilling it to my local Bitcoin community as like, “Hey, this is how we should trade Bitcoin. We should just use this because this business is totally awesome.”

Wiz: And I guess, let’s see, a few days ago, last Thursday, we had what’s called a Liquidity Party where I think like five guys all made like two or three offers each. And sure enough, we have like 10 offers on the JPY offer book on Bisq right now. I can’t believe it, it’s happening, the community is now decentralized.

Wiz: Like a week ago, everyone was using KYC, now they’re free. Now they have their freedom back. They have their privacy. And some of the guys are actually going to be market makers and they could probably make like three, four or 5% profit on each trade, which is not bad.

Wiz: For $1,000 trade, you make like 50 bucks profit, and you’re protecting your local community members privacy in the process. So we’re all just collectively opting out of using decentralized Bitcoin exchanges in Japan and just more organizing our local community of individuals to trade with each other.

Wiz: And so far it’s, it’s beautiful. We’ve got real people with real money, and then they love it. They’re all on here with fake names like Johnny, or I think there’s two guys named Satoshi on here. I’m sure they’re all guys in my meet-up group, but I actually don’t even know who they are, so that’s pretty cool.

Stephan Livera: What about the process of educating them to use Bisq? I suppose someone who has never used it before, how did you walk them through that?

Wiz: I took it from the top and explained how Bisq is basically a layer two system. It has a peer-to-peer network. Everything is routed through Tor. You’re essentially running a Bisq node on your computer when you install the Bisq app and… They’re all Bitcoiners, so they get that pretty quick.

Wiz: And they understand the concept of trading peer-to-peer with no KYC, so they got that pretty quick. It was just a matter of doing a few live trades on stage at the meet-up, calling some guys up from the audience and having them trade with me live in front of everybody.

Wiz: And once I just pushed them to install the app and do a few trades, they were hooked. That’s all it took. It’s like if you get Bitcoin and you try Bisq, you’ll get Bisq. It’s the exact same philosophical principles at work.

Stephan Livera: And it’s basically just one app, right? Okay. I understand there’s a newer trade protocol coming. Steve, did you want to touch on that?

Steve Jain: Yeah, I guess I could. I don’t know too much about the details, but I can say that the intention is to make Bisq a little bit more flexible. So essentially, it’s going to be off-chain.

Steve Jain: This is far into the future, but we want to basically allow people to trade Bitcoin where the security comes from BSQ bonds. Should we maybe talk about the DAO and the BSQ first? There’s a little bit more context.

Stephan Livera: Yeah, let’s do that. Can you just give us an overview on how Bisq is developed then?

Steve Jain: Yeah. The Bisq network… We’ve talked so far about the Bisq network from the perspective of users, how it’s a peer-to-peer network and each person has their own sovereign node participating in this network to trade how they want. The contributor side of Bisq is also a network.

Steve Jain: I think that’s something that important for people to understand, and meaning that it’s not a company, it’s not an organization, or a legal entity of any kind, it’s literally a network of sovereign individuals who choose to contribute to the network.

Steve Jain: And as a result, the traditional ways of organizing an operation don’t really apply. We wanted to make it so that the project could sustain itself with minimal designated leaders. In fact, there are no designated leaders in the Bisq network.

Steve Jain: And so the two main things to do here are funding and governance. So strategy needs to be figured out, the way forward for the project, how it develops, what it develops need to be figured out and funding.

Steve Jain: People are going to work on this with any consistency and reliability, there’s got to be a way to pay them to keep them around and keep them contributing. And the basic ingredients are there, meaning that the traders pay trading fees, and so there is a stream of revenue, but the question was how do we get that revenue to contributors on merit?

Steve Jain: And so that’s the foundational idea of the Bisq DAO and the BSQ token. Essentially-

Wiz: Wait a minute, BSQ token? Is that a shitcoin?

Steve Jain: Oh. No, actually. BSQ actually… Thanks for calling me out. Token is probably not a great word, it’s Colored Bitcoin. So essentially, when you trade or when you contribute to Bisq, you make a compensation request. You ask the network for compensation for what you’ve done, and you get BSQ, you’re basically issued BSQ.

Steve Jain: I guess maybe it’s probably not worth going into the details of how all of that happens, but you essentially put in a piece of Satoshis in your request and those Satoshis get colored to be worth the amount that you earn doing the work. And then you sell that BSQ to traders looking to trade on the Bisq network.

Steve Jain: And the reason they buy that BSQ is because trades made with BSQ as trading fees costs less. So there’s a built in economy of people looking to use the software, and people looking to contribute to the software, and the BSQ Colored Bitcoin is what allows that economy to work.

Wiz: I think when-

Stephan Livera: Sorry, I think the obvious question at this point listeners would want to know is why not plain Bitcoin?

Steve Jain: There’s a lot of reasons, but I think the best way to answer that is it’s a logistical problem. If you used plain Bitcoin, that Bitcoin… Before the DAO launched actually for the first three years that Bisq was around, trading fees were only paid with plain Bitcoin. But the problem with that was that all those fees went to one wallet, one or two wallets.

Steve Jain: Bitcoin wallets have to be owned by somebody, and so what you had was these enormous amount of fees piling up in these wallets, but you had a lot more contributors than just the people who owned those wallets.

Steve Jain: So you had a whole team, you had a whole team of developers, you had people doing growth initiatives, and support, and all kinds of things, but they weren’t seeing any of that Bitcoin.

Steve Jain: Now you could say, well, the people who own those wallets could simply have taken a portion of the Bitcoin and distributed it to the people who deserved it, but then you would have a central point of failure.

Steve Jain: The entire viability of the network would be reliant on those people to distribute that Bitcoin fairly and regularly. But what the BSQ token does, is it allows that distribution, that collection and distribution to be decentralized so that no one person is in charge of figuring out how much somebody has earned, and actually giving them that compensation.

Wiz: I think my understanding of… And Stephan knows I’m one of the biggest shitcoin critics out here. And actually, Steve, I’m sure you remember when I first started talking to you, I was like, “BSQ, what is this shitcoin, man? I don’t want any of this.”

Steve Jain: I remember.

Wiz: Actually after I studied this quite a bit, I realized that for any other type of business, you could just create up a centralized company. If you’re selling, I don’t know, steaks on the internet, if you’re selling beef on the internet, yeah, you would just make a company and you would accept Bitcoin and that would work.

Wiz: But the problem is that these evil governments of the world really want to regulate trading of Bitcoin. And so the reason why Bisq can’t be a company, it has to be this decentralized organization, so the contributors have plausible deniability about who is actually quote, unquote operating the exchange.

Wiz: And of course, it’s like Bitcoin in the sense that nobody’s really operating it, it’s a peer-to-peer network. Each individual user is trading with another individual user.

Wiz: But the purpose of the BSQ Colored Bitcoin is for the voting rights. If you’re running a business, you need this way to make decisions. For example, should we ban BCash? Should we, add this ICO scam or not? And so if you have the BSQ Colored Bitcoin, then you can use that to vote.

Wiz: And you can also let contributors color their own Satoshis into the BSQ Colored Bitcoin with the consent of the entire decentralized organization voting to approve that request of coloring your coin.

Wiz: So if I do a pull request into the Bisq repository, I can then make a proposal to a compensation request to color some of my own Bitcoin as BSQ. And if the DAO approves, if the decentralized organization votes to approve my compensation request, okay, great. Now I have some BSQ, and I can actually either hold it or I can sell it to the users of Bisq and they can use it to pay their trading fees on the exchange.

Wiz: And so in that sense, the Bisq traders who buy the colored BSQ from me are directly compensating me for my contributions to the Bisq software, or to the website, or whatever work I did. And this is a really beautiful system of both governance, voting and compensation.

Wiz: And also if we want to change a parameter in the Bisq network, like if we want to increase the trading fees or something, the BSQ voting can also just programmatically have all the nodes adjust like a certain parameter. And this is really beautiful governance system.

Wiz: It could probably be adopted to other use cases as well outside of Bisq, but… Actually shout out to Mr Hodl. He’s another hardcore toxic Maximalist and he tweeted out some horrible things at the Bisq developers like, “What is this shitcoin?”

Wiz: And sure enough, he eventually came around too. He’s like, “Actually BSQ is the first legitimate quote, unquote token use case that I’ve ever seen.” And actually, Mr. Hodo is now a big Bisq fan as well.

Wiz: So surprisingly even the most toxic Bitcoin maximalists are okay with the BSQ Colored Bitcoin because they see why it’s okay. They see why this is the one legitimate token in a sea of tens of thousands of scam tokens.

Steve Jain: If I could just add real quick. You mentioned how not having a legal entity enables the Bisq to be sovereign as an operation. I just want to add that it also extends the idea of user sovereignty, because Bisq is actually software that gives its users a well defined path to helping define its future.

Steve Jain: When I talked about the BSQ token, I focused on the funding aspect, and compensation aspect, and trading fees. Wiz mentioned the governance aspect for strategy. I just want to make clear that that also extends to users.

Steve Jain: So any user who has acquired BSQ, or works for BSQ can also now have a say in the strategy of the software they use, which if you’ve ever been banned on Twitter, or any other social network you have no say.

Steve Jain: You use a software, you rely on it all the time, but you have no say in how it actually works. Bisq with the DAO and the token, the Colored Bitcoin is looking to change that.

Stephan Livera: As I understand then, there’s multiple components or aspects around this BSQ thing, and look, so the listeners are aware, I’ve never held any BSQ, I hold zero. I’m not shilling it, but I just want to summarize my understanding of it.

Stephan Livera: So as you’re saying, it has some component of use in voting and decisions made on the Bisq network and the Bisq software as you will. And it’s also used for compensation. So is that correct?

Steve Jain: Yeah.

Stephan Livera: Okay. Got it. All right. So look, I guess that’s BSQ. I guess the other point is you can use Bisq without ever touching BSQ, right? You can just literally just go on there, and just buy and sell, and just pay your fee in Bitcoin. Right?

Steve Jain: Yeah, that’s true. It’s good we highlight that. No obligation.

Stephan Livera: Right. Okay. So look, we’ve spoken a little bit about the DAO. Did you want to touch on the trade protocol off-chain component? Because I’m not too clear on that.

Steve Jain: Yeah. I don’t know, Wiz, if you want to jump in. I’m not too familiar with this, but I guess now that we’ve talked about the BSQ token-

Wiz: Sure. So obviously the V2 protocol is still very early in the discussion proposal phase, but the general idea is that arbitrators are a bad idea because they are literally trusted third parties. They are the weakest link.

Wiz: They are the central point of failure. They are the security hole. I could go on and on. We have to remove arbitrators from Bisq for a number of reasons. They’re also very expensive because it’s very time consuming, and it’s very trusted role, and if they make a mistake or if the government goes after them, for all these reasons.

Wiz: And so to increase the decentralization of the entire Bisq network and peer-to-peer network, we just want to remove arbitrators. And this is of course, easier said than done because right now they’re such a critical part of the trade protocol.

Wiz: But essentially the Bisq V2 trade protocol would use a 2-of-2 Multisig instead of a 2-of-3 Multisig. And so you would only have the powerless mediators to resolve issues if they arise. And in the event of a dispute, or maybe I should back up a little bit. There’s actually going to be a little bit more barrier to entry.

Wiz: So right now, if you want to do a trade on the current trade protocol, you have to put up like a 10% security deposit to buy Bitcoin. You need a little bit of Bitcoin to buy Bitcoin. Or if you’re going to sell Bitcoin, you have to put everything into the escrow.

Wiz: But this is going to change in the V2 protocol to be bonded. So in order to… And this is maybe a little bit like Lightning in a sense is that you actually have to create a bond on Bisq before you’ll have trade any on it.

Wiz: For example, if you have $1,000 bond, that means you could do up to $1,000 worth of simultaneous trades on Bisq. And if you scam somebody, the mediator of your trade dispute could go to the DAO, the decentralized community, and say, hey we should revoke this guy’s bond because he scammed this guy.

Wiz: And the entire community could vote on it, and this way, the role formerly known as arbitrator would essentially get this bond from the Bisq community, and he would reimburse the… How do you say? Disgrieved party, whoever got scammed. And this I think really goes to the decentralized nature of Bisq.

Wiz: It really maximizes the value of the DAO itself and the BSQ voting structure, everything to remove the quote, unquote weakest link. And the other second big change in the V2 trade protocol is that it’s going to be the Bitcoin trade wall will be removed from the Bisq app.

Wiz: And so I think the way we’re going to implement it is that we’re going to… Right now, we’re adding the API into the Bisq app. So it’s probably going to be something like Bitcoin core in the sense that you’ll have Bisq D and Bisq CLI, and you’ll also have this RPC API.

Wiz: And this will allow us to do a number of things like develop a mobile app that connects to your computer at home, running Bisq, or your Raspberry Pi home running Bisq, something like this, which we currently don’t have.

Wiz: But more importantly, it’ll allow us to… For example, there’s a lot of Monero community traders right now that want to integrate Monero wallet into Bisq somehow. And I said, “The best way to do that is with the API.”

Wiz: And so when you’re trading with Bisq, if you want to send Monero to someone, or if you want to send Bitcoin to someone, you shouldn’t be required to use the Bisq wallet. You should be able to use a Trezor, or some Casa Node, ePIC, Multisig setup, whatever you want, because that’s really outside of the scope of Bisq.

Wiz: The real primary purpose of Bisq is to connect traders directly with each other in a private and freedom oriented way. And so by adding this API, it allows the V2 trade protocol to eliminate the Bitcoin trade wallet. And then this will allow you to settle trades in Lightning for example.

Wiz: So this is why it’s also known as the off-chain protocol is because currently the trade protocol uses four Multisig on-chain transactions, which right now is okay because the blocks are empty. But as the blocks get full and the mempool fees go up, one trade on Bisq will be very expensive with the current trade protocols.

Wiz: So the other solution for just scaling Bisq in general is to not use four Multisig transaction, is to let the trade parties use whatever they want to settle the transaction. And this will allow them to use Lightning or other off-chain settlement, which will allow Bisq to really scale.

Stephan Livera: Okay, cool. I suppose the other question I have at that point is just around the scalability of the model. If it requires the DAO to vote on every potential arbitrator, or what was previously arbitrated, is that going to become a bit difficult for the DAO or vote on that sort of thing?

Steve Jain: You mean in the context of dispute resolution or?

Stephan Livera: Yeah. Let’s say a few years from now, a lot of people are using Bisq, and just with the the law of large numbers, there’s a lot of disputes going on. With every single dispute that gets to that point, have to now get voted on by the DAO. How scalable is that?

Steve Jain: It’s a good question. The intention is that such occurrences would be very low, so we don’t want… So if there’s any more than one case that has to be decided upon, one dispute case that has to be decided on by the DAO, one a month would probably be too much. It should be a very rare occurrence even at scale.

Steve Jain: The intention is that through Trader Chat, through mediation that disputes are largely solved, and that arbitration cases that go to the DAO for a decision are exceedingly rare. And we’re not going to be there immediately, it’s going to take time.

Steve Jain: I’m sure at first we’ll have a little bit more than we want, but I think those are bugs that we’ll have to work out. And then over time, the intention is that they will just be very rare.

Wiz: I think a lot of the structure of Bisq is to prevent disputes from happening in the first place. And so for example, if you’re putting up $1,000 bond just to be able to trade on Bisq, scammers aren’t going to put up their own money and then just to try and scam people for the equal amount of money or even less back. It just doesn’t make any sense.

Wiz: The financial incentives and financial disincentives are in place. Because that’s really how crypto-anarchy systems work. Like in Bitcoin or any other system, you need crypto-anarchy, you have to financially incentivize good behavior and financially dis-incentivize dishonest behavior.

Wiz: And it’ll be like a real exception case if something has to go… if a bond has to be confiscated. So far on the Bisq DAO, correct me if I’m wrong, no bonds have ever been confiscated, right?

Steve Jain: No, not yet.

Stephan Livera: Okay, cool. Look, from my point of view, I guess I’m still on the fence a little bit about the BSQ token, but I still would like to see decentralized, no KYC exchange. So personally I don’t hold any BSQ, I’m not shilling it, but I’m probably willing to turn a blind eye to it and just be like, all right, that’s cool, just whatever. And if people want to use it, it’s another option.

Stephan Livera: My view as I mentioned before is I would like to see a full gamut of options. Like you’ll have the fully KYC exchangers, and you’ll have people somewhere in the middle, you’ll have people like hodlhodl. They’re centralized and non-custodial. And then over on this end we’ll have Bisq.

Stephan Livera: It’s properly decentralized and there are certain things that have to be done to make that happen. And if that includes the BSQ and the DAO, it’s probably that’s all they can be done. But I think then the question is just around, what are your thoughts around driving Bisq adoption then if you want to see people doing decentralized, no KYC exchange?

Steve Jain: I guess you got to have more Wizs. You got to have people who are willing to put in the work. I know Wiz has been working tirelessly on the Japanese market, on the website translations, the program itself, the Bisq software translations, holding events to educate people, having groups.

Steve Jain: I know he has a Keybase group for Tokyo to just keep people in the loop communication-wise. So I guess that’s what we’ll need I think for global adoption and multiple languages, multiple regions. Just people on the ground doing what they can. And then also of course, I think contribution and development is a big part of it too.

Steve Jain: This new V2 trade protocol is going to require a lot of work, and the DAO like we’ve talked about is meant to incentivize that. So just as a frame of reference, the DAO has been out since April is when it was launched. And since then there’s been well over 100,000 BSQ have been burned for trading fees.

Steve Jain: Meaning that that amount of money was essentially directed to contributors for their work, and then used by traders to use Bisq. So for such a new novel obscure concept, I think it’s done quite well.

Steve Jain: And contributors I think… Folks interested in contributing hopefully can take a look at it and if they like it, then become a part of the project and just help spread it.

Stephan Livera: Great. Wiz, did you have anything you wanted to add on on that? Just on your thoughts around driving Bisq adoption?

Wiz: Yeah. And to respond to your point earlier about the BSQ Colored Coin, I totally understand if you’re a toxic Maximalist, and you think that BSQ is a shitcoin, then just don’t use it. Pay your trading fees in Bitcoin and think of it as something that the Bisq contributors and developers use internally to vote on things.

Wiz: And it’s totally opt-in. If you don’t want to use BSQ, don’t use it. And if you’re more interested in contributing to Bisq, then yeah, do your own research and figure out, decide for yourself if BSQ is a shitcoin or not. Believe me, I am the biggest shitcoin opponent, and I came around, so… But do your own research.

Wiz: And yeah, if you want to adopt Bisq in your local community, please come on the Bisq Slack or Keybase groups and contact Steve or I, and we can talk about how to localize the payment methods in your area for Bisq.

Wiz: We can talk about, you know other localizations if you want to do translations, if you want to work on the website or other documentation. I figured out with Steve over the past few months here how to launch Bisq in a new market and really, really fortunately that it’s working out.

Wiz: I just can’t believe how satisfying it is to help spread Bisq to local community and just see the look on everyone’s face when they realize like, oh yeah, we’re free now from the government regulation. We can now trade with our ourselves and stay private, keep our freedom.

Stephan Livera: From my point of view, I think I would like to see it be a viable option, and I think definitely would like to see if possible, more people using it and adopting it. And that way it’s always there as just like… It’s like existing in the same way that BTCPay Server.

Stephan Livera: It exists as this way as like, if nothing else works, you’ve always got BTCPay Server kind of thing. It’s always there. And I think from that point of view, I do want to see more decentralized Bitcoin exchange.

Stephan Livera: And that’s again, I’m not attacking other forms of exchange. Obviously, I see a role for many, a spectrum. I just want a good option to exist, and I would like to see that. So for any listeners who are interested, if they want to go download Bisq or if they want to find you guys, where should they come and find you?

Steve Jain: So the website is bisq.network, and we have a Slack space bisq.slack. Actually, the invite link is a slightly different. The link is bisq.slack.com, but I think the invite link, we can maybe put that in the show notes if possible. Then bisq_network is the Twitter handle.

Stephan Livera: Fantastic. And just for you guys, if people want to find you on your personal names, where can they find you?

Steve Jain: So I tend to go by m52go, jain.io is my website. You can put those in the show notes as well.

Stephan Livera: Cool.

Wiz: I’m Wiz and you should check out my website, bitcoiner-or-shitcoiner.com.

Stephan Livera: Very nice. All right. Well, thanks very much guys. Thank you for joining me today.

Steve Jain: Thanks for having us.

Wiz: Thanks.

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